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+6.35(+0.41%)

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-0.20(-1.17%)

-0.01(-0.71%)

Looking Toward Employment Numbers

The budget sequester has taken effect, but thankfully everything seems to be just fine.

The fourth quarter earnings season is effectively in the books now, though it will still be couple of more weeks before we can officially call an end to the reporting season. The focus this week will be on economic data, with the February jobs reports coming out on Friday. The budget sequester will also provide headlines, though thankfully the actual onset of the long-dreaded event has thus far been quite underwhelming.

But while earnings may not be in the headlines, we will have a total of 188 companies coming out with results this week, including 5 S&P 500 members. By the end of this week, we will be close to the finish line, having seen Q4 results from 491 S&P 500 companies or 98.2% of the index’s total membership. The major companies reporting this week include Kroger (KR), Staples (SPLS), H&R Block (HRB), Hovnanian Enterprises (HOV), Transocean (RIG) and Smith & Wesson (SWHC).

The reality of the Q4 earnings season is that it has turned out to be not as bad as many of us suspected. Leaving aside anemic growth, on most other metrics the fourth quarter reporting season is quite good. Not only are the ratio and magnitude of surprises better than the previous quarter and comparable to the last many, but the tone of management guidance has also been less worrisome than was the case in the third quarter reporting season.

Total earnings for the 486 S&P 500 companies that have come out with Q4 results, as of Friday March 1, are up +2% from the same period last year, with 64% beating expectations with a strong median surprise of +3.4%. Stripping out the unusual revenue growth at Prudential Financial (PRU) and Express Scripts (ESRX), total revenues are up +1.5%, with 58% of the companies beating revenue expectations, with a median revenue surprise of +0.7%.

Expectations for the coming quarters have started coming down, but they still represent a meaningful improvement from what we saw in 2012. Total earnings are expected to be -4.1% in the first quarter, +4.8% in the second quarter, +7.4% in the third quarter and +12.9% in the fourth quarter of 2013. What this means is that the market is looking for flat earnings growth in the first half of 2013 (only +0.3%), but expects a +10.2% jump in the back half of the year.

For the full-years 2013 and 2014, total earnings are expected to be up +6.8% in 2013 and 11.7% in 2014. The bottom-up ‘EPS’ estimates for the S&P 500 currently stand at $109.50 for 2013 and $122.28 for 2014 (Note: The Zacks bottom-up estimates are lower than other data vendors because we account for employee stock options, while others don’t).

Economic data will be front and center this week, with the February non-farm payroll report coming out on Friday. The expectation is for ‘headline’ gains of 151K, modestly lower than January’s 157K reading. The East Coast snow storms could potentially be a distorting factor in this month’s data.

But given the recent favorable momentum on the jobless claims front, it wouldn’t be unreasonable to look for a positive surprise. Other major economic reports this week include the non-manufacturing ISM index for February and the January Factor Orders reports.

Monday - 3/4

No economic reports are scheduled today.

Transocean (RIG) is the major earnings report in the morning, while ABM Industries (ABM) will report after the close.

The February non-manufacturing ISM index coming out in the morning is expected to show a modest pullback from January’s 55.2 level. Given the positive surprise from the manufacturing ISM report on Friday, it will be interesting to see if we get similar momentum on the service sector side, which overall has been doing better lately than the manufacturing side.

VeriFone Holdings (PAY), Smith & Wesson (SWHC), Nutri System (NTRI) and Jamba (JMBA) are the major companies reporting, all after the close.

Wednesday - 3/6

The February ADP jobs report will come out in the morning, providing us with a preview of what to expect from Friday’s government jobs report. The expectation is for the ADP report to show private sector jobs of 175K in February compared to 192K in January.

Hovnanian Enterprises (HOV), Big Lots (BIG), Staples (SPLS) and American Eagle Outfitters (AEO) are the key reports in the morning, while Along USA (ALJ) will report after the close.

Thursday - 3/7

In addition to the weekly Jobless Claims data, we will get the second look at the Q4 productivity data and the January Trade Balance numbers.

Kroger (KR) is the only notable report in the morning, while Pandora Media (P) and H&R Block (HRB) will report after the close.

Friday - 3/8

The February non-farm payroll report coming out in the morning is the highlight, with expectations of 151K headline job gains during the month, modestly down from January’s 157K level.